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Ignoring doomsayers, CBS and News Corp. keep betting on cable TV

March 29, 2013|By Joe Flint
  • News Corp. President Chase Carey, left, and CBS Chief Executive Leslie Moonves still believe in cable.
News Corp. President Chase Carey, left, and CBS Chief Executive Leslie… (Carey: Reuters; Moonves:…)

CBS and News Corp. apparently aren't worried about cord cutters.

Both companies are making investments in pay-television channels at a time when the very business model on which the industry is built faces challenges from changing consumer habits and legal battles.

This week, CBS agreed to plunk down $100 million for half of the TV Guide Network and News Corp. announced it was creating FXX, a sister channel to its FX network. FXX is the second major cable initiative News Corp. has in the works: The company also is building a national sports network called Fox Sports 1 that will debut later this year.

To be sure, none of these are on the surface particularly high-risk investments. CBS is getting half of TV Guide at a bargain basement price. Although the channel is in 80 million homes, its ratings are tiny and it gets only about two cents per month, per subscriber from distributors, according to industry consulting firm SNL Kagan. It is a fixer-upper for sure, but CBS won't have to break the bank to boost its performance.

News Corp. is basically flipping houses with its two new channels. It is converting its Speed Channel into Fox Sports 1 and its Fox Soccer Channel into FXX. It also has plans to re-brand its extreme sports network Fuel as Fox Sports 2.

Sports programming isn't cheap, but News Corp. already owns more than 20 local sports channels (including two in Los Angeles) and has rights to the NFL, NASCAR and Major League Baseball. A case could be made that the more outlets it has, the more leverage it can use in negotiations with sports leagues. Also, the value of sports is on the rise, whereas most other entertainment content is likely to see its value diminish in the coming years.

The rationale for FXX is a little trickier. After all, if News Corp. has so much fresh content that it needs a whole new channel to accommodate it,  then why not put more original fare on FX? That channel does have a lot of original product such as "Sons of Anarchy," "Justified" and "The Americans," but it also carries plenty of movies and reruns. There is more than enough of space to put fresh shows there.

But if FX can clone itself and instantly be in almost 80 million homes, it's probably worth the gamble, regardless of whether viewers have been screaming for another channel. It's a smart move in today's pay-TV business.

Still, it is hard not to look at the current media landscape and feel the winds of change. As younger generations get weaned on Netflix, Hulu and other digital services instead of traditional pay TV, the business model of selling consumers hundreds of channels when they want only a few dozen will eventually have to change.

It's not just consumers wanting more choice in how they buy TV. Cablevision, a big New York-based cable operator, recently sued Viacom because it is tired of having to buy a lot of low-rated cable networks in order to have access to MTV, Nickelodeon and Comedy Central. Cablevision is alleging that Viacom's method of bundling channels together is anti-competitive and bad for its customers. If Cablevision wins -- and that is a big if -- it could change the way programmers sell to distributors and force a lot of channels out of business.

Even programmers such as Viacom recognize things are changing. Its Comedy Central Network puts episodes of "The Daily Show with Jon Stewart" online for free within hours after the show has run on the channel even though that bugs the heck out of its cable and satellite partners.

What CBS and News Corp. are really betting on is their ability to create or acquire content so superior that it can survive any technological or cultural shifts in how entertainment is consumed and purchased. No one said navigating the future didn't require a certain amount of self confidence.

ALSO:

FX to launch new sister channel FXX

News Corp. unveils new sports channel

CBS strikes deal for half of TV Guide Network

Twitter: @JBFlint

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